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5 Steps To Fresh Financial Start In 2013





There are plenty of dangers in leaving your household finances on auto-pilot for too long. If you don't take an occasional look at your overall financial picture, it's easy for your money to become out of sync with your priorities. But the start of a new year is a great time to re-evaluate things.

Heading into 2013, here are five things you can do to make sure your personal financial program is on the right track:

1. Consolidate and coordinate

People tend to take a shopping cart approach to investments. Every now and then, something catches their eye so they pick up a new mutual fund here, or a new bank account there. These may be legitimately good opportunities, but your financial holdings should be part of a coordinated asset mix rather than a series of independent investments. So start off the new year by trimming back any holdings that don't have a clearly defined role. This will allow you to better coordinate your investment program.

2. Recalibrate

As you shape your portfolio into a coordinated whole, reassess how your holdings fit with your current goals and needs. Over time, your income and expenses change, and the growth of your portfolio may run ahead of or behind schedule. In light of those changes, you need to recalibrate every now and then to make sure your risk-reward profile fits your goals and your progress toward them.

3. Shore up your income

One of the most dramatic changes in recent years has been the deterioration of income production due to falling savings account rates and other interest rates. Despite that falling off, income production is still an important component of a portfolio because it provides liquidity -- plus a steadier component of returns than price changes. As part of your New Year's adjustments to your portfolio, check whether you are making the most of your income opportunities. Compare savings account rates to make sure your bank is competitive, and consider whether dividend stocks might play a greater role given the low-interest-rate environment.

4. Assess your budget performance

While looking forward to 2013, you need to take a moment and evaluate how you did in 2012 in terms of controlling expenses and sticking to your budget goals. Take a hard look at any expenses that got out of line in 2012, and figure out how to better manage those expenses in 2013. Look at any monthly expenses that can be trimmed, and do some price shopping on large recurring items, such as your insurance.

5. Challenge your savings rate

Personal savings rates in the U.S. have been under 4 percent for the past year -- an unacceptably low rate that, if continued, will leave a great many people unprepared for retirement. Rather than holding yourself to this very poor peer group standard, you need to crunch the numbers and figure out what savings rate will allow you to accumulate enough money for a decent retirement. Challenge yourself to build your budget around that savings rate. Use techniques such as directing the bulk of any pay raises toward savings until you reach your target rate.

A good way to look at the new year is that it wipes the slate clean. Whatever financial mistakes you may have made in the past should be put behind you. Your sole focus should be making the year ahead more successful than the last.

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